To determine the physical state of lipids in tendon xanthomata, six specimens surgically removed from three patients with familial hypercholesterolemia were studied by microscopy, calorimetry, and X-ray diffraction. The study suggests that a major component of tendon xanthomata is extracellular cholesterol ester which displays altered melting and molecular orientation as a result of an interaction with collagen. At xanthoma temperatures, the cholesterol ester is in a smectic liquid crystalline state, probably layered between collagen fibrils, with the long axis of the cholesterol ester molecules perpendicular to the axis of the collagen fiber. Such collagen-cholesterol ester interactions may favor the extracellular deposition of cholesterol ester derived either from intracellular sources or directly from plasma lipoproteins.